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Experts' Views - Nathalie Broutèle

Meeting with Nathalie Broutèle, Managing Director of Natixis Assurances, a subsidiary of Natixis and the Groupe BPCE (Video)

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Economic research - Flash Economy

on 5/16/12 : What is the cost in terms of growth for the euro zone, compared with the United States, as a result of the inadequacy of euro-zone institutions?: The euro zone, taken as a whole, is a more solid region economically and financially than the United States: absence of external deficit, moderate fiscal deficit, larger industry, etc. The euro zone’s shortcomings stem from institutional problems: - the fact that there are multiple sovereign issuers and a lack of federalism, and this drives up some countries’ interest rates sharply and leads them to reduce their domestic demand, resulting in a significant cost in terms of growth; - the lack of fiscal cooperation, which has led to an excessively rapid reduction in fiscal deficits; - the lack of labour mobility, which means that countries with high unemployment coexist with countries that enjoy low unemployment. We seek to estimate the shortfall in growth compared with the United States caused by these institutional problems.
on 5/16/12 : We have to face the fact that wage costs are too high in France and Italy: It is important to know whether the economic woes of certain euro-zone countries stem from their cost-competitiveness. We will look at the situations in Germany, France, Spain, Italy, Portugal and Greece. Obviously, the wage level does not give a reliable assessment of cost-competitiveness: it needs to be corrected for labour productivity and the level of product sophistication; the latter can be assessed based on the ability of companies to pass on production costs to sales prices and the price-elasticity of demand for a country’s products. This analysis leads us to conclude that wage costs in France and Italy are too high relative to Germany and Spain. The labour cost problem can therefore not be ignored.
on 5/16/12 : Even an extremely expansionary and unconventional monetary policy by the ECB would not solve the euro zone’s structural problem: Many voices are calling for a highly expansionary and very unconventional monetary policy in the euro zone. One could for example imagine the ECB buying government bonds (at their market price), and exchanging them in its balance sheet against new bonds with very long maturities and very low interest rates. The loss for the ECB would be artificially neutralised. This would significantly ease the troubled countries’ servicing of their (public and external) debt. But even so, the euro-zone crisis would not be over. Several deindustrialised euro-zone countries (France, Spain, Portugal, but no longer Italy) would continue to post a current-account deficit (even when taking into account the fall in the servicing of the public debt held by non-residents), and would still have to borrow from other countries. The problem of a required return to external equilibrium for countries in a currency area without federalism, and the issue of excessive costs in terms of jobs caused by this return in many countries, would still be present.
on 5/14/12 : A high public debt ratio risks reducing potential growth: In many euro-zone countries the public debt ratio is going to stabilise at a very high level: France, Spain, Portugal, Greece and Ireland. We believe the major risk is the likely negative effect of a high public debt ratio on potential growth, because the stabilisation of a high public debt ratio requires a substantial primary fiscal surplus. To obtain this, the easy way out is to reduce government spending that is useful for growth (government investment in infrastructure, R&D and education) or to increase taxes which have a negative effect on long-term growth (welfare contributions in particular). If the countries yield to this facile solution, they will obviously reduce their potential growth. We examine the policy followed in the euro-zone countries which already had high public debt ratios at the time of the euro's creation: Italy and Belgium. There we indeed find most of the perverse effects expected of a high public debt ratio, but they have weakened potential growth only in Italy.
on 5/14/12 : France: A change of direction for economic policy is needed: The long-run deterioration in France’s economic situation is impressive: losses of skilled jobs, market shares and export capacity, decline in companies’ profitability, the sophistication of their products and in potential growth, inability to meet domestic demand, despite the rise in government expenditure and in the tax burden, persistent fiscal deficits and an expansionary monetary policy. If only marginal adjustments are made, this trend will persist and an under-employment and balance of payments crisis, similar to the one affecting the Southern euro-zone countries, will be inevitable. In our opinion, a change of direction is therefore required that would make it possible to create a fabric of large, profitable, job-creating and export-oriented SMEs (this can be discussed, but the need for a break with the current trend is indisputable). This will certainly require a sweeping tax reform, an analysis of the efficiency of policies and government expenditure, a change in the functioning of the labour market, a renegotiation of the new prudential rules for banks and insurance companies, etc.

EXPERTS' VIEWS

Experts' Views - Nathalie Broutèle

Meeting with Nathalie Broutèle, Managing Director of Natixis Assurances, a subsidiary of Natixis and the Groupe BPCE (Video)

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